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A Startup Shies Away from the Gig Economy

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90 pointshvo83 comments

Here's a dirty secret:

You don't need a real estate agent, particularly a buy-side agent. Look at the housing markets in the UK and Australia. Buy-side agents have never existed there, and are a particularly odd quirk of the U.S. market. When you close the deal you typically have a banker there, and ideally a lawyer. So what does the agent actually do? Drive you around to houses you have already previewed online?

Being a real estate agent is no different than being an investment banker or a consultant. Realtors are deal-driven and therefore, not a true advocate for clients. If a client pays more for a house than they should, then the buy-side and sell-side agents make more commission. If a house sells quickly then it is less hassle for the sell-side agent. So to be fair, there is something of a balancing dynamic to the market, and there are surely good and skilled agents out there, but don't count your real estate agent in your corner. Their interests are not necessarily aligned with yours.

And there's more.

Whereas most professionals work on a flat rate by the job or by the hour, real estate agents work on a percentage, which is especially shady because it takes about the same work regardless of the value of the property. So it works out to be more of a "piece of the action" like extorting, or gate keeping, than a service.

There's other barriers to non-agents playing as well. For example, registering on the MLS has to be done by an agent. There are services that list for you, but they're agents. Bloody hell, it's just a database entry.

I'm not saying the agents don't perform a valuable service--it's nice to have sometimes--but the system should be more open and the pay scheme more fair.

There is nothing wrong with being compensated proportionally to the value of a deal. A real-estate agent who sells a $10 million property more quickly has created more value for her customer than one who sells a $1 million property more quickly.

Yeah except the same real estate agent will try to push you to sell that property for $9 million, against your interest, if they think that the extra commission on that $1 million is not worth their effort for several extra months or years, often using manipulative tactics. This is a very perverse incentive and should be replaced with regular time based billing, perhaps with bonuses for certain milestones based on the final sale price of the property, especially given the information assymetry between realtors and owners. Until realtors have a legal duty to their clients, like lawyers or doctors, predatory behavior in the industry will remain.

so if the agent is more incentivized to sell at $9m and make guaranteed money rather than $10m and making a little more at the risk of losing the deal, but it gains you ~$1m in income in selling it, doesn't that mean the agent should get a higher percentage of the sale?

I can see this going either way where the seller is annoyed the you are making a lot more money for not that much more work or that the seller realizes that if he can make an extra $900k by paying someone $100k it would be worth a 10% commission.

Who said anything about losing the deal? It just takes longer to sell the house when the seller is looking for a better deal. Studies have shown that when a realtor sells their own home, they have better returns and keep the property on the market longer because of information asymmetry [1][2][3] while also displaying the opposite behavior when they sell their own property in competition with their own clients, which is in and of itself a huge conflict of interest [4].

It's not about annoyance. If the realtor gets more money for the client they deserve more money themselves. Before that sale takes place, however, the commission creates a perverse incentive which combines with information asymmetry, resulting in shady behavior. If realtors were bound by law, like other professions or fiduciaries are, this wouldn't be a problem.

[1] http://www.mitpressjournals.org/doi/abs/10.1162/rest.90.4.59...

[2] http://www.sciencedirect.com/science/article/pii/10511377929...

[3] http://www.sciencedirect.com/science/article/pii/S0304405X05...

[4] http://link.springer.com/article/10.1007%2Fs11146-015-9543-y

Your grandparent is talking about buy-side agents though -- as a buyer-only brokerage, our experience is that high priced transactions are usually easier to deal with because finances are more buttoned up and the deal is less emotional. The thing that is genuinely harder and more expensive with the higher priced sales is customer acquisition. At Open Listings we started with a flat-fee model but quickly realized that we were excluding lower priced transactions and not able to make the margins work for acquiring buyers at the higher end. Instead, we now refund 50% of the commission, so while it's not as good a deal for the uber rich, we think we're able to grow faster with more marketing dollars in the system. A deal is only good if people know about it and we've been able to refund a ton of money back to buyers this way. When we've reached a critical mass my hunch is that CAC will drop and we'll be able to drastically lower our commission or go back to working for a flat fee that's more reflective of the costs to do the transaction.

Being compensated proportional to value created is a not a free-market position. It may be philosophically justified, but in a free market, the value created has no bearing in the price of the service: just supply and demand.

Talking about value created sounds quite odd when taken out of a business relationship. E.g. how much should cleaners be paid, given that without them properties could degrade into public health hazards? The "value created" model of a fair wage gets short shrift.

That's just not true; it's a variant of thinking that "Janitors at a $10B market cap company should make 10x more than those at a $1B company".

Just because they were attached to a more valuable project doesn't mean that their specific value contribution was greater.

In the case of the janitor, we can clearly see why it's wrong: if you pay 10x much, your applicant pool will be flooded, and you will not be able to sell the resultant product[1] for more than you paid.

Likewise, when a $10 million property is sold, more value is created than with a $1M. But it doesn't mean the 10x difference was due to the agent; usually, the same price can be achieved without paying 10x as much, but various factors keep the market out of equilibrium.

[1] You have to be careful in defining the relevant market here. In this case, the "buyer" is the worker, who pays in the size of the "compensating differential" they accept. (You will have to pay a lot to get employees at disgusting, unmaintained office.) You know that you're paying too much for the janitor when their cost is higher than the induced reduction in compensating differential.

Edit: To be sure, REAs for big properties do legitimately contribute more value because of all the other ways that they can eke out a higher sales price, and janitors at prestigious offices can contribute more value than those at Walmart stores; it's just that the value contribution is not, as you implied, and was being contested by the GP, proportional to the value of the attached capital.

> But it doesn't mean the 10x difference was due to the agent

The value added by the real estate agent is not selling the property, but selling it quickly at the highest possible price. The opportunity cost to the seller of a $10 million property sitting on the market an extra month is 10x higher than for a $1 million property. So it's not unreasonable to pay the agent more. It's certainly not "shady."

Of course, if you think you can sell the property in the same time frame with a less-qualified agent, nothing is stopping you from negotiating a lower percentage fee.

> usually, the same price can be achieved without paying 10x as much, but various factors keep the market out of equilibrium.

Those being? The real estate industry is incredibly competitive, especially now with Redfin, etc.

>The value added by the real estate agent is not selling the property, but selling it quickly at the highest possible price.

No one's disputing that they added more value, only that it shouldn't be directly proportional to the property. (See the "edit" remark.)

>Those being? The real estate industry is incredibly competitive, especially now with Redfin, etc.

I don't have insider knowledge, but "inertia" is a big one in real estate -- no one wants to be the one that starts doing things differently. And I don't think that counts as "competitive"; in a competitive industry, you can't rest on your laurels, but the top home REAs basically live off the monopoly returns from having already sold properties, whether or not they actually pass rigorous tests of their value contribution.

>Of course, if you think you can sell the property in the same time frame with a less-qualified agent, nothing is stopping you from negotiating a lower percentage fee.

It's not like everyone wanted to invest in every venture that ever proposed a better way of doing things, or that all value opportunities are immediately obvious to everyone and they come beating down your door to take advantage of them, even and especially when there are numerous st(ake|ock)holders with veto power.

Edit: Toned down.

> That's not responsive; I already explained how that doesn't mean their value contribution accounted for the full difference, even as it accounted for some of the difference. (See the "edit" remark.)

Your edit doesn't change my point. The primary value the real estate agent adds versus say an ad in the paper is selling now versus selling later. The value of that time-saving is directly proportional to the value of the property.

> but "inertia" is a big one in real estate

"Inertia" is not something that "keep[s] the market out of equilibrium." At least I've never seen it in any economics textbook as an example of market failure.

> but the top home REAs basically live off the monopoly returns from having already sold properties

Your argument stretches the word "monopoly" to absurdity. It takes a high school degree, a 60-hour online course, and passing an incredibly basic exam to become an REA.

> Right, just like everyone wanted to invest in every venture that ever proposed a better way of doing things, because all value opportunities are immediately obvious to everyone and they come beating down your door to take advantage of them, even and especially when there are numerous st(ake|ock)holders with veto power?

What stakeholders with veto power are stopping you from negotiating a lower fee with the most desperate REA you can find? If all you need is an REA so you can put up an MLS listing they're a dime a dozen.

>The primary value the real estate agent adds versus say an ad in the paper is selling now versus selling later. The value of that time-saving is directly proportional to the value of the property.

The relevant comparison would be to cheaper agents, not to "the paper". Your comment is like saying that a $70k car adds $70k of value because it transports me to where I close a $70k deal. It's not the right comparison to be making.

>"Inertia" is not something that "keep[s] the market out of equilibrium." At least I've never seen it in any economics textbook as an example of market failure.

That's almost literally what the term means, and the analogy from physics carries over; higher-inertia objects (all else equal) go more slowly to their equilibrium. And "market failure" has a specific meaning that doesn't cleanly map too "it may take a long time to reach equilibrium", which is why I never used the term nor tried to model the dynamics that way. (Although, had that been my argument, that would be a clever reply.)

But if you want something that appears in an econ textbook, see any discussion around the Keynesian point about "in the long run we're all dead". Same thing applies here: yes, excess returns are decreasing, but not quickly.

>Your argument stretches the word "monopoly" to absurdity. It takes a high school degree, a 60-hour online course, and passing an incredibly basic exam to become an REA.

I said "monopoly returns", not "this is literally a textbook monopoly". The REA course doesn't get you the extensive reference book of (ignorantly) satisfied, risk-averse sellers.

It's the same concept as the "monopoly returns" to a brand name, even though there's free entry to creating brands.

If the term is distracting, find/replace it with "quasi-rents".

>What stakeholders with veto power are stopping you from negotiating a lower fee with the most desperate REA you can find? If all you need is an REA so you can put up an MLS listing they're a dime a dozen.

You don't see why the Board would be reluctant to use a green agent, even after seeing evidence of REA value under-contribution (relative to percentage typically requested)?

My understanding from a friend that works in the real estate business in US, is that especially in the post-crash world, there are so many complex laws that require a certain amount of specific education, simply to legally engage in a trade. Basically it is a scam.

It has to be this. Otherwise newcomers would come in and compete the shit out of them. I can think of few other scenarios that would result in such a racket.

Yeah, good luck seeing a house without a real estate agent. You might get lucky and make it to an open house, but in that case, the seller's agent holding the open house will very likely try to represent you as well (if that's legal in your state) for twice the commission. It's not like you can just call up the seller of a home and ask to see the house. It doesn't work like that (unless it's a for-sale-by-owner situation, which is rare).

I'm not disagreeing with you in principle, but in practice, you almost always have to have an agent as a buyer even if all the agent does is unlock doors for you.

Why is that? All else being equal, why would the seller or his agent prefer to pay extra commission to my agent?

The listing contract specifies a fixed commission that typically gets split with a buying agent.

If there's no split, the listing agent gets the full commission.

You shouldn't need an agent but in the US when the listing is put on market (on the MLS) the seller allocates 5-6 percent for the buyer's and seller's agent to split. If you make an offer without an agent, the seller's agent is entitled to the whole thing (though they may be less likely to take your offer because you won't have an agent pushing along the close). That said, I've heard of people negotiating refunds directly with the seller's agent -- it's just less likely to work in competitive areas where they have the option to work with another agent on the deal.

If you're looking to buy a home without the full concierge agent experience and you want a clear savings, I'd be remiss not to plug Open Listings (YC W15) [0] (disclaimer: I'm a cofounder). We refund half the commission back to the buyer, write, submit, and negotiate all the contracts, and make sure the close is smooth. While all of the contract generation is super efficient and online, we have a superb team of (human) agents who work hard to feel out the seller and get your offer accepted at the best terms. We coordinate showings, inspections, and answer your questions but we won't drive you around in a cadillac telling you what neighborhood is "safe".

[0]: https://www.openlistings.com/

Fwiw in theory the selling agent getting the entire commission should be more willing to twist a seller to accept your offer, than if they are splitting with the buyers agent. Plus independent of ethics, they might be more willing to hold off another realtor asking about the property for their client (who they will have to pay a commission to) if your offer is in process. By hold off I mean not return a phone call immediately or try to stall in a way that wasn't obvious.

Otoh there is a disadvantage to not having a realtor as an agent in the sense that the selling agent should be able to more accurately read your intent because they hear your voice and what you are saying. Now if you are good at the game you can get beyond that but most people aren't up to that skill level for home buying.

We thought that would be the case, but in practice we've found that listing agents usually refuse to double-end deals. Instead they tend to refer clients that approach them to a friend (often another agent working under the same broker). I think the reasoning is that there's a higher chance of the deal falling through if the buyer doesn't have their own representation coaching them through it. There's a lot that's not intuitive about real estate deals (or at least violated our initial assumptions).

> deal falling through if the buyer doesn't have their own representation coaching them through it

I believe that. It's possible because perhaps the buyer is under the impression that the agent is working in their interest and doesn't have a bias. (Similar to the way you might believe the restaurant waiter if they tell you a few things that you don't expect to hear from them..)

That's why you list for 2% and tell buyers you won't split the fee. We do it in commercial real estate all the time and the rest of the world does it that way for residential too. Why do we always seem to do things the scammiest way and ignore how other countries do things?

I see how this could work in the future, but in the current market how do you attract buyers without a commission?

5-6% of the sells price for the agent is crazy inefficient! Why is noone undercutting them?

(To cite the UK market again, I think it's usually 2-3% there? I remember the Economist had an article on the difference.)

I've been trying to figure this out as well. I'm not familiar with the real estate market but this smells of rent-seeking (e.g. regulatory capture) or a price-fixing cartel.

Assume there's some bullshit legislation that will take $10 off 10,000 people and give $1,000 to 100 people.

And assume the cost of lobbying for or against some legislation is $20. A bit of your time, a letter or two, travel costs to lobby your representative or attend a demonstration, whatever.

For the people who are going to get $1,000 it makes sense to spend $20 lobbying for the bullshit legislation. The people who are going to lose $10 barely bother lobbying against it.

I figure this is the reason the home buying process involves so much bullshit compared to buying anything else.

It's a cartel. The local "Realtor" association operates the MLS.

The National Association Of Realtors is one of the largest spenders on lobbying every year in the US. They spend tens of millions of dollars every year lobbying members of congress. This is an industry prime for disruption. As Millenials begin to garner a larger share of the housing market I would not be surprised to see the involvement of realtors waining

http://www.opensecrets.org/lobby/top.php?indexType=s&showYea...

http://www.opensecrets.org/lobby/clientsum.php?id=D000000062...

We are... you just have to be careful how you do it so that you're still able to operate in the same marketplace with the current incentives (we cut our own fee without cutting anyone else's).

See, this is what I never got...if the seller pays the buying agent's fee, isn't that agent in fact working for the seller by the very definition of how they are getting paid? How could they ever be operating in the interest of the buyer?

Who exactly pays for what - whether buyer or seller - is often negotiated. It's tied to the price of the house, but if the price ends up a little higher to cover those costs then the buyer is paying for it. Of course, both the buyer's and the seller's agents are once incentivised to achieve as high a price as possible, everything else equal.

The seller pays using the buyer's money.

Anec-data in support of your point; We bought a (US, Florida) house without a realtor. Saw a classified ad in the paper (2004, we still read physical papers), owner had put it on the market, conducted his own open house. We saw it, loved it, offered, he accepted... and his lawyer and our lawyer made sure that all the money and other appropriate paperwork was handled properly. Realtors are a convenience, not a necessity. I probably wouldn't have been comfortable buying my first house without someone to walk me through the process, but we were very happy with the results of our realtor-less purchase. Funny story: our new next-door neighbor was a realtor, and she said he could've gotten another ~$20,000 on the sale price if he'd used a realtor... not noticing that that's about what the realtors in the deal would've taken as their share.

Non-aligned interests also apply to almost any service you can imagine. Teachers have conflicts of interest in showing students alternative ways to learn. Dentists want more expensive jobs so find more worthwhile cavities to fix. Journalists want attention so find the spectacles instead of deeper value…

The only problem with buyer's agents is the pretense that they strictly are on your side and have no conflicts of interest. A buyer's agent who explicitly acknowledges their conflict of interest and discusses that with a client is as good as you can get for reasonable and honestly, valuable service.

Personally, I'm buying a home with help from a buyer's agent, and our agent has been so wonderfully helpful, was willing to admit his conflicts of interest, and emphasized that he'd rather us feel everything about the process (including getting the best price or missing a house to wait longer for the right one) was aligned with his interests because he values our review and referrals to others. He's interested in sustaining a long-term successful career rather than the immediate pay-off. That aligns his interests with ours more. He's also done a ton of good work and even been a great help as someone to discuss all steps of the process.

So, in the Bay Area, how should one buy a house?

First, have 400K in liquid assets and a combined income of at least 300K...

I can't talk for the UK, but here in Australia we have traditionally never had buy-side agents (they do exist, but they are relatively rare). Also the fee the agents get is much less - 1% to 2% and closer to 1% in the big markets.

The other thing is in the large markets like Sydney most of the properties are sold at public auctions. The last two properties I bought I bought at public auction. Many people find this so stressful they hire agents to bid for them, but this is just a fee for service usually.

Well, our (buy side) realtor really did earn his money helping us. We were first-time home buyers and he did a great job helping us understand what buying an old house in our neighborhood would be like, as well as vetting the mechanicals of the many many homes we looked at before making a buy.

Additionally, he helped us understand what were sane, and what were insane demands when purchasing.

I'm not sure if I'd need an agent next time around, but this time around it was a lifesaver.

That was my experience as well as a first-time buyer. Admittedly many years ago (pre-Web) and the price was such as to make any prospective Bay area buyer weep. That said, my realtor gave me what seemed good advice on offers and helped navigate through some tricky landscape related to agriculture liens and the like.

(Funny thing though was that it turned out I knew the seller so we both could have potentially saved some money.)

Without the agent you wouldn't know that you knew the seller :)

Could you elaborate on the sane vs. insane demands (examples of each)?

"Realtors are deal-driven and therefore, not a true advocate for clients" thank you and case closed.

That's true and not true. A common business model for many real estate agents is to accumulate listings to get posted to MLS. There's one guy in my area who has like 350 listings.

They aren't really equipped or motivated to service buyers (or sellers for that matter) and suck to deal with. Having a gofer deal with their bullshit who gets paid by someone else is pretty useful.

I must have found the only buyer's agent worth a salt. 4 offers all closely lumped together, and the seller's agent wanted to do anothe round of best and final offers. My buyer's agent convinced him not to, that he would tell us not to make another bid, that we were overly qualified to buy the place, that it would close fast, etc. The seller's agent said ok, you got the deal. He basically pulled some bullying mind control tactics and got us the place without having to go through crazy Bay Area bidding wars.

Considering he actually got us into our place, at a good price, and without stress; I think his commission is definitely worth it (especially considering appreciation since).

Perhaps there really weren't 3 other qualified offers?

There was at least 1 other. One of the non-winning parties later bought another unit in my building and came by to chat. We had some wine, and they told me what their offer was. It was only $3k less than ours. In vino, veritas.

> You don't need a real estate agent, particularly a buy-side agent.

It's pretty hard for someone who's not in the industry to get adequate protection. First off there's a variety of fees (title, title transfer, title insurance, escrow, HOA docs, miscellaneous city and county fees) that are split in a generally accepted (but un-recorded anywhere) manner. The buyer's agent would know of a fair split, the seller's agent will pile it all on the buyer in the hopes that it will be accepted.

Then there's liens, unpaid taxes, Mello-Roos, special ordinances, leases on rooftop solar, delinquent HOA fees, etc. that are against the property and must be double-checked before accepting full possession.

Then there are hidden gotchas like low-flush toilet requirements in some California cities. What you thought was going to be an easy plumbing fix turns into a major project required by law.

In case of HOA there are financial docs that are hard to analyze for someone unsophisticated - is HOA in dire trouble? Or solid financial standing? Are fees going up any time soon?

> When you close the deal you typically have a banker there, and ideally a lawyer.

A typical deal involves a bunch of back-and-forths involving requests to fix or include certain items, and negotiating the prices of those (e.g. fix the dilapidated screen on a door or provide $200 credit at closing, seller's choice, seller counters with $100 credit instead).

How can one find a real estate lawyer that would be cost-efficient?

If it's buyer's agent's compensation that seems excessive, one can always find a hands-off guy with a real estate license who won't put in much work, but will rebate majority of his fee.

Get a home inspection. The split fees are only if there are 2 agents; with one (sellers') agent they should pay the fees. In Iowa there's a lawyer (by law) to do a title search; the "buyer's agent" doesn't do squat about that. CA has title-search companies; again your agent isn't any help there.

What possible point is there in a hands-off guy that doesn't do much work?

Read a book; buy your own house and save some money.

> with one (sellers') agent they should pay the fees

In any active market such out-of-ordinary offers would be viewed as low-balling and not worth countering (as seller's net is suddenly lower than a similar offer, but with split fees).

This would work, likely, with distressed sales, or in any situation where the buyer has an upper hand to begin with.

P.S. I don't really have a horse in the game, and don't get secretly compensated by the powerful real estate lobby (I wish!), but in my short practice I've been on the buying side 3 times, all in California, and buyer's agent (Redfin for 2 out of 3 transactions) has been pretty helpful.

I also agree with your approach, and know people that have gotten their own real estate license just to represent themselves (and occasionally their friends) in clear-cut transactions.

> First off there's a variety of fees (title, title transfer, title insurance, escrow, HOA docs, miscellaneous city and county fees) that are split in a generally accepted (but un-recorded anywhere) manner. The buyer's agent would know of a fair split, the seller's agent will pile it all on the buyer in the hopes that it will be accepted.

This is a quirk of the industry.

A 'fair' and simple way of dealing with this is to make the buyer pay everything, then adjust how we think about home prices accordingly.

If you need to pay 10,000 additional to attain a home, that should be included in your mental model of how the particular home is priced.

HoAs are a quirk of the US land-system, having some kind of quasi-democractic process over common territory. In the UK, there are only home estates, wherein the land is actually owned by a 3rd party and people who own the structures built on the land instead pay ground rent to the 3rd party.

There's no democracy because ownership is to a single party.

Is the UK's system better than the USA's? I'm not 100% sure, but certainly it is proof that alternatives can thrive and realtors are unnecessary so long as you make further changes to the system.

> A 'fair' and simple way of dealing with this is to make the buyer pay everything, then adjust how we think about home prices accordingly.

Yep, totally agreed. If the seller wants to make his property more attractive by taking care of some of those expenses, have them just lower the price accordingly.

> HoAs are a quirk of the US land-system, having some kind of quasi-democractic process over common territory. In the UK, there are only home estates, wherein the land is actually owned by a 3rd party and people who own the structures built on the land instead pay ground rent to the 3rd party.

How do multi-family housing units operate? Here are some examples of what an HOA might take care of (and charge monthly fee):

* care and maintenance of common ground areas, like lawns, trees, sidewalks, driveways

* care and maintenance of shared amenities, such as pool, outdoor spa, gym

* roof maintenance and replacement

* combined utility billing (water, garbage, rarely electricity, sometimes cable and wired Internet) when bulk purchase results in cheaper per-unit rate for everyone else

A few of those things are not straightforward and usually require owners to vote, e.g. should we replace the roof now or wait for another year, should we allow AirBnB-style short-term rentals or are they a nuisance and lead to noise, should a children playground be installed on the lawn, or there's no majority demand for it?

All of those things are attorney issues. The real estate person has no skin in the game other than the sale, and can and will baffle you with bullshit to close the deal.

If you're relying on a real estate person to take care of legal problems, you're rolling the dice.

Are real estate attorneys cheaper though? I've never hired one, but is the charge per hour (as with other lawyers) or fixed per engagement?

For my house in New York, I paid about $900. That was a little high because there was an issue with an adjoining parcel that was purchased and mishandled when the lots were joined.

Real estate has been "disrupted" in some places, by companies like redfin. There is some much inertia in the market, since most people use a real estate agent when selling and just eat the 6% commission (3% to each side), people think "the commission is free or already priced in". Since almost everyone is in the 6% commission game, it puts you in the same thing.

This is a misleading title. Redfin isn't a startup, they're a 12 year old company founded in 2004.

This is one of my biggest pet peeves. "Startup" is now synonymous with "Tech company that isn't Google, Apple, Microsoft, or Amazon."

PALANTIR IS NO LONGER A STARTUP THANK YOU http://www.businessinsider.com/palantir-employee-stock-buyba...

I think a more accurate classification (from the popular journalism viewpoint) would be that a startup is a tech company that hasn't gone public yet.

I agree, but I worked at a tech company that IPO'd in 2014, and to this day they still get referred to as a startup. E.g. Shopify, Etsy, GrubHub, Care.com, Zendesk, etc.

I'm confused. Pretty much all startups have their engineers, designers, managers, etc. as W2 employees, no? Having employees isn't the issue, it's having a huge employee count that needs to scale with the scale of the business, rather than operating a huge business from a (relatively) small staff.

As a first-time homebuyer in the Bay Area, would the HN hivemind recommend Redfin, or using a traditional agent?

I was at an open house a couple of weeks ago, and decided to ask the (seller's) agent about her experience. She was young, and said that she had 'bought' only 1 house so far. It was listed at $1.6M, and her client got it for $1.84M. And it was the only bid..... I was like huh? You encouraged him to bid more, and he ended up paying 15% over? That's not something to be proud of. So I'm a bit leery of agents now.

You are on your own. Buyers agents are worthless.

> Mr. Kelman argues that full-time employees allow him to offer better customer service. Redfin gives its agents salaries, health benefits, 401(k) contributions and, for the most productive ones, Redfin stock, none of which is standard for contractors. Redfin currently employs more than 1,000 agents. . . . Now with his company on a stronger footing, Mr. Kelman says he believes his approach has been vindicated.

I love Redfin. But it's sad that the market forces Kelman to justify his business model only on the basis of what doing right by employees does for his own bottom line.

That's what markets are for. Governments are supposed to insure ethical relationships between their citizens. Markets are there to make sure that those standards are met to the letter and no more, not met where there is little risk of enforcement, and changed wherever this can be likely be accomplished for less expenditure than the savings expected. Markets are meant to optimize things, not humanize them.

I agree that is one way to look at it, but I'm not sure the dichotomy works in practice.

Unless the customers or employees-in-demand or investors demand humanisation!

This justification is advertisement for his company so more people will be willing to work for them.

This is also something Paul Hawken touches on in "Growing a Business", along with a suggestion (IIRC) not to pay sales staff a commission:

https://www.amazon.com/Growing-Business-Paul-Hawken/dp/06716...

As an aside: I had a really positive experience buying with Redfin in the Denver metro. Their agents were as helpful as any I've ever worked with, they have good online tools, and we got roughly $5k back from the buyer's 3% commission when we closed.

I would recommend them to anyone looking to buy a house in a metro that they service.

I thought most realtors earned commission? Does the company keep the commission here then instead? It's an interesting idea, I think I would trust one of their theoretical agents more since they aren't directly incentivized to get me to buy a more expensive property.

They say in the article around half their yearly pay is in the form of bonuses from completed sales.

I'm sure it looks a lot like commission.

The difference being that would focus more on number of sales if their market doesn't have many high value properties.

Redfin agents receive bonuses for completed transactions that typically account for more than half of their annual compensation. Its a commission even when you don't call it that. See what happens to a sales person when she/he don't sell for a month.

Right after your quote is pretty relevant info imo:

|But a big factor in calculating the bonuses is the agent ratings provided by Redfin customers after they buy or sell a home. Top performers get stock options.

|“I’m not going to lie — we’re motivated to sell homes,” Ms. Goetz said. “But it’s always in the context of the client and wanting them to have a good experience.”

The model could reward agents who sell less but have higher ratings, since Redfin is concerned with building a brand.

Yeah. I read that too. Uber does the same thing with drivers, When a driver gets a bad rating he gets less calls therefore makes less money. CX is a natural part of the sales process. You only get feedback on the deals you close therefore the more deals you close the more ratings you get. You don't close the deals with bad CX. It is in the best interest of the agent to provide a killer CX. IMO: You can be a nice guy and get great ratings, but if you don't close, you'll be canned quick fast.

In the US, typically 6% goes to the two realtors, divided 3 and 3. Of that, their office will get roughly half and they get half, so their takehome is around 1.5.

I just sold without an agent and discovered that even these are negotiable, when you're talking as a peer with the buyer's agent. I ended up paying 2.5 to the BA and $1300 to an attorney (notably an hourly rate, not a percentage).

> Of that, their office will get roughly half and they get half, so their takehome is around 1.5.

This actually varies wildly by brokerage. The massive ones, such as Remax, often don't make their money on real estate commissions, but on ancillary products that are required for the transaction: title insurance, inspections, mortgages, etc, and because of that, offer as much as 95/5 splits with their agents. My dads brokerage, in contrast, provides their agents with a decent number of services for managing escrows and the like, and have a 75/25 split.

You have the file concerning the property, with all the information about it, including a photo gallery. Location (GPS lat/lon) and ask price are certainly important filter fields.

You may want to hire an hourly-rate admin clerk to prepare all the information and file it into a long list of web-based databases.

Next, you may want to hire a person to show potential buyers around. So, an hourly-rate "showaroundist".

So, that means that you are dealing with two hourly-rate persons doing some work for you to market your property.

If you are incapable of organizing this, in that case, you are probably incapable of organizing anything at all, and in that case I wonder how you managed to get the money to buy the property that you are selling now in the first place?

In other words, someone who agrees to pay a percentage value of his property to a real-estate agent, is simply someone who will not be capable of making enough money to own a property in the first place.

What is the average W2 salary of a Redfin agent? The NYT left this out.

It did say this:

> Average annual compensation for Redfin agents is over $80,000, with agents in exceptionally expensive markets like the San Francisco Bay Area earning more, the company said.

Though it isn't clear if that is just salary or if there is something else included in "compensation".

Hey, you're supposed to incorrectly call it sharing economy. Hmm... somebody sharing a car with you... somebody driving you around... sound like it's the same thing... Offering a service is obviously the same as offering access to a resource... except it's not so why do online newspapers call it sharing economy? Do they want to show off their lack of competence that much?

Does anyone else find it odd that houses have agents that take huge fees/commissions but other financial products can simply be bought and sold in a way easier manner?

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